Housing market 'on its knees' as odds of Bank of Canada rate hike rise

Canada's housing market would face significant impacts if the Bank of Canada raises its trend-setting interest rate on Oct. 28, mortgage and debt experts told CBC News, with traders in the overnight swap market now putting the odds of a 25-basis-point hike at 87 per cent, up from 70 per cent earlier this week.

The central bank has not raised interest rates since July 2023, and an eighth-consecutive hold is still widely predicted, but a growing number of economists and traders expect a hike to tamp down stubborn inflation. Higher rates would immediately raise payments on variable-rate mortgages and lift rates for new fixed mortgages, shrink the pool of eligible buyers and could push home prices lower. "The housing market is kind of on its knees right now, and rising rates is like tossing a drowning guy an anchor," said Scott Terrio, manager of consumer insolvency at Ontario-based Hoyes Michalos & Associates, adding that a hike "would reverberate massively."

The volume of home sales nationwide is at a 25-year low, said Ben Rabidoux of Ontario-based Edge Realty Analytics, who described buyer confidence as "unbelievably weak across the country" amid economic uncertainties ranging from the Canada-U.S. trade war to the impact of AI on jobs. He said "a gradual grind lower over the next three or six months is very plausible" for home prices if interest rates start rising. Last week, the Canadian Real Estate Association downgraded its 2026 home sales forecast for a third straight quarter, to 444,530 homes, a 5.2 per cent drop from 2025, citing a "notably more hawkish tone from the Bank of Canada."

The bank's policy rate has stood at 2.25 per cent since a quarter-point cut in October 2025. Governor Tiff Macklem has warned the bank may need to raise borrowing costs if energy prices remain elevated, saying Saturday there is "no resolution in sight for the conflict in the Middle East" that has roiled global energy markets. Statistics Canada data released Monday spotlighted soaring energy costs, and the bank's latest survey, also released Monday, found businesses bracing for higher prices.

The consensus in a recent Bloomberg survey still points to a hold, but the Bank of Montreal, RBC Dominion Securities and Desjardins Group this week flipped their predictions for the Oct. 28 decision from a hold to a hike. "It's not a slam dunk call, but there is probably enough supporting evidence for a hike," wrote Derek Holt, head of capital markets economics at Scotiabank. Macquarie Group economist David Doyle predicts the bank will raise its policy rate by 125 basis points by the end of 2027. Leah Zlatkin, a licensed mortgage broker and expert commentator with LowestRates.ca, said a recent price drop in the Greater Toronto Area makes now a "good time to buy," adding: "if you'll qualify for the property today, then you'll qualify again later on if rates rise."